Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Final project
SUBMITTED TO
SUBMITTED BY
RABIA JALIL
(07 ARID 440)
FANAR BATOOL
(07 ARID 420)
NEELAM SHEHZADI
(07 ARID 439)
I
Am extremely
thankful to Allah
Almighty who has
enabled me to complete this
report on time and in the manner
it was required. He provided me
the resources to capture the
knowledge and avail the
opportunities in the world. It is
also a matter of immense
pleasure for me to express my
gratitude to my Teacher
Sir.KASHIF SAEED who has been a
source of real inspiration for me.
His experiences formed an
important part in this report. His
guidance and encouragement
provided me a mean to step
ahead towards my objective in a
proper way. I also wish to
ARID AGRICULTURE UNIVERSITY Page 2
acknowledge the support of all
my friends, who helped in
completing this report. Without
their support and cooperation it
was not possible for me to
complete this report.
Executive summary………………………......3
Cement industry……………………………4
Organizational structure...……………….15
Lucky cement……………………………..16
Fauji cement………………………………30
Conclusion………………………………..44
TURNAROUND
The lady luck however started getting kind on this sick unit when the
decision makers took some bold and timely decision especially the
conversion of the cement industry from oil/gas to coal fired system
which proved cost effective in the real sense of the term. Those units
which were running in huge losses entirely changed their complexion
from losses into profits. However, the conversion of fuel system was not
only the major contributor for bringing a turnaround change in the
cement sector, there were some other forces which helped bring stability
in this important sector. And that was the increase in demand both on
local front as well as from war ridden Afghanistan where the
international community has undertaken the gigantic task of
reconstruction of Kabul and other war affected areas in that country.
In the year 2002, the cement sector has recovered its losses it had to
suffer in the past as all the cement units have performed admirably well.
The tremendous recovery achieved by the cement industry reflects in
the fact that out of the total 22 cement units listed with the stock
exchange, 18 have announced their financial results for the year 2002
with an aggregate net earnings of Rs948 million. This tremendous
recovery has reverted the cement sector into a profitable zone-certainly
a remarkable performance.
TAXATION
Despite the fact that cement constitutes as one of the basic necessities for
shelter, the policy makers have subjected the cement sector to the
highest taxation in the region. The levy of General Sales Tax (GST) on
cement is Rs660 per ton in Pakistan as compared to Rs320 in India. The
excise duty is Rs1000 per ton of the cement which is 186 per cent higher
than India where it is Rs350 per ton. In the light of this tax regime, it is
said that Pakistan has one of the highest tax rates on cement in the
Asian region. The impact of such tax and duty structure has resulted in
almost 40 per cent increase in the cement price per 50 kg bag when
compared to India suppressing demand for Pakistan cement.
CONVERSION
Conversion from furnace oil plants to coal firing system has already
taken place in majority of the cement producing units which have
started getting high benefits but they are also reluctant to pass on the
benefit to the consumer on the pretext that the industry has suffered
great losses in the past due to high price of furnace oil hence unless the
losses of the past are recovered they are not in a position to pass on the
benefit to the end users. On the contrary, the experience shows that
whenever the prices of oil were increased the additional cost was always
passed on to the consumers; it is however up to the price control
authorities to safeguard the interest of the people.
While looking at the conversion process of the cement industry from
furnace oil to coal fired system, it comes to notice that Pioneer cement
was the first one to convert its cement plant to the coal firing system.
During financial year 2001, the company incurred a heavy loss of Rs284
million, which turned into a profit of Rs44 million in the financial year
2002. The conversion of furnace oil plant to coal fired system
significantly reduced the production cost of the company resulting in an
improved bottom-line. It is reported that the domestic coal is not of a
very high quality however the processing and blending the local coal
with the imported one can produce required heating content that is
The industry has now entered into a new phase where the scale of
production and plant location will play a major role in determining the
profitability of the company. In past, the difference between the large
and small players was very thin which has now widened drastically and
The Vision
The Mission
To be the largest and fastest growing cement producer using state of the
art technology at the most competitive cost by utilizing our experience
for maximizing profits for our shareholders.
The Strategy
The Vision
To transform into a role model cement FCCL manufacturing Company
fully aware of generally accepted principles of corporate social
responsibilities engaged in nation building through most efficient
utilization of resources and optimally benefiting all stake holders while
enjoying public respect and goodwill”.
The Mission
“While maintaining its leading position in FCCL quality of cement
and through greater market outreach will build up and improve its
value addition with a view to ensuring optimum returns to the
shareholders”.
2006
Current ratio= Current Asset
Current Liabilities
= 4455494000
4752035000
Current ratio = 0.938 times
2007
Current ratio= Current Asset
Current Liabilities
= 5402678000
6352556000
Current ratio= 0.85 times
ANALYSIS:
Although in both years the position of the company to pay off its short
term debt is not very good. It is necessary for the company that its
current ratio remains above 1 time to meet its short term obligations
and in the case of lucky cement the current of year 2007 is declining
because the short obligations (liabilities) are increasing at a faster pace
than its current assets.
2007
Quick ratio= Current Asset- Inventory
Current Liabilities
= 5402678000-676256000
6352556000
Quick ratio= 0.744 times
ANALYSIS
Here the Quick Ratio of year 2007 is declining because company is
holding huge amount of inventory as compared previous year. The
quantitative sales of company in year 2007 is 4.64 mtpa against the last
year sale of 2.2 mtpa because there is a growth in Pakistani cement
industry and there is overall an increase in sale of the cement so that’s
why there is a need to hold much bigger amount of inventory as
compared to year 2006 and the quick ratio of both years is less than 1.
2006
Inventory turnover = Sales .
Avg inventory
= 8054101000
431418000
Inventory turnover= 18.669 times
2007
Inventory turnover = Sales .
Avg inventory
= 12521861000
676256000
Inventory turnover= 18.516 times
ANALYSIS:
Inventory Turnover Ratio indicates the effectiveness of the inventory
management practices of the firm. The inventory turnover of year 2007
is less than the inventory turn over of year 2006 but as the whole cement
industry is growing and the company is maintaining a big amount of
inventory as compare to the inventory of year 2006 so that’s why the
inventory turnover is decreasing and the inventory turnover ratio of
year 2006 was 18.669 which indicates that 18.669 times in a year the
inventory of the firm is converted into receivables or cash. However, in
2007, the inventory turnover ratio decreased to 18.516. This was due to
the fact that the company, in 2007, invested more in inventory as
compared to previous year.
= 182301000
Average collection period = 182301000 * 365
8054101000
Average collection period = 8.262 days
2007
Inventory turnover = Sales
Avg inventory
= 12521861000
676256000
Inventory turnover= 18.516 times
ANALYSIS
Inventory Turnover Ratio indicates the effectiveness of the inventory
management practices of the firm. The inventory turnover of year 2007
is less than the inventory turn over of year 2006 but as the whole cement
industry is growing and the company is maintaining a big amount of
inventory as compare to the inventory of year 2006 so that’s why the
inventory turnover is decreasing and the inventory turnover ratio of
year 2006 was 18.669 which indicates that 18.669 times in a year the
inventory of the firm is converted into receivables or cash. However, in
2007, the inventory turnover ratio decreased to 18.516. This was due to
the fact that the company, in 2007, invested more in inventory as
compared to previous year.
= 182301000
Average collection period = 182301000 * 365
8054101000
Average collection period = 8.262 days
2007
Average collection period= Account Receivable * 365
Sales
Account Receivables = Trade debts+ other receivables
= 476667000+176546000
= 653213000
Average collection period = 653213000 * 365
12521861000
Average collection period = 19.041 days
ANALYSIS:
Credit policy is defined as the maximum time period allowed to the
customer to pay back.
The average collection period in the year 2006 was 8.262 days which
means that the firm is able to collect its receivables within
approximately 10 days. However, in 2007, the average collection period
increased to 19.041 days, thus now the company is collecting its
receivable within approximately 20 days. There could be many reasons
for this increase in average collection period such as, problem in
management, lack of incentive given to its customers or undependable
customer.
= 8054101000
19165108000
Fixed Asset turnover = 0.42 times
2007
Fixed Asset turnover= Sales
Fixed Asset
= 12521861000
20318908000
Fixed Asset turnover = 0.616 times
ANALYSIS:
The fixed turnover ratio measures how effective the firm uses plant and
equipment. The role of fixed asset is to support the sales. The fixed Asset
turnover ratio of year 2007 is 0.616 times and in year 2006 was 0.42 this
shows that as the fixed asset increases there is also an increase in the
sales.
2007
ANALYSIS:
The final asset management ratio the total asset turn over ratio
measures the turnover of all the firm assets and help us to identify when
problem occur that is a problem in fixed assets or in current assets.. In
2006, it was 0.341 times and in year 2007 is 0.487 this change was
brought about by an increase of 55.5% in the sales. Where as the total
assets only increased by 8.8%.
2006
Debt ratio = Total Debt
Total Asset
= 16553144000
23622777000
Debt ratio = 70.1 %
2007
Debt ratio= Total Debt
Total Asset
= 16370211000
25723761000
Debt ratio = 63.6 %
ANALYSIS:
The debt to equity ratio in 2006 was 70.1% which shows that 70.1% of
financing through debt. However in 2007 the debt to equity ratio
decreased to 63.6% which shows that the company curtails its financing
through debts although there is an decline in the risk the company
facing but still the firm debt financing on the higher side as compared to
ideal situation which is 60% equity & 40% debt.
2007
Time interest earned= EBIT
Interest
= 3066113000
853399000
Time interest earned = 3.593 times
ANALYSIS:
Indicates a firm’s ability to cover the interest charges. The interest
coverage ratio was 34.429 in 2006 which have decreased to 3.593 in 2007
therefore the company are not able to cover the interest expense at a
higher margin of safety.
2006
Profit margin = Net income
Sales
= 1935950000
8054101000
Profit margin = 24%
2007
Profit margin = Net income
Sales
= 2547292000
12521861000
Profit margin = 20.3 %
ANALYSIS:
Profit margin of year 2007 declined because of the high cost which
occurs because of inefficient operations and heavy use of debt.
2007
Basic Earning Power= EBIT
Total Asset
= 3066113000
25723761000
Basic Earning Power = 11.9%
ANALYSIS:
This ratio shows the raw earning power of the firm asset before the
influence of taxes and leverage and it is useful for comparing firm with
difference tax situations and different degrees of financial leverage. The
BEP of year 2006 was 11.7 % which increased little bit in 2007 to 11.9%
the result shows that operating profit of year 2007 is growing bY1.1% .
2006
Return on Asset= Net income
Total Asset
= 1935950000
23622777000
Return on Asset = 8.19 %
2007
Return on Asset= Net income
Total Asset
= 2547292000
25723761000
Return on Asset = 9.9 %
2006
Return on equity = Net income
Common equity
= 1935950000
7069633000
Return on equity = 27.4%
2007
Return on equity= Net income
Common equity
= 2547292000
9353550000
Return on equity = 27.2%
ANALYSIS:
This ratio is the most important ratio for investor point of view. This
ratio shows that how much investors get return on their money that they
have invested in company stocks. If we compare the ROE of 2006 to
2007 there is a decline on ROE by 0.02% and this is not a good sign for
the investors to invest in company shares and this is also a threat to
Lucky cement because it is the goal of every company to maximize its
shareholders wealth.
2006
Price per share / EPS = Price per share
EPS
= 127
7.35
Price per share / EPS = 17.279 times
2007
Price per share / EPS = Price per share
EPS
= 127
9.67
Price per share / EPS = 13.133 times
Analysis:
(P/E) ratio shows how much investor are willing to pay per Rupee of
reported profits. In comparison of 2006 and 2007 (P/E) ratio there is a
decline in (P/E) ratio by 4.146 times in 2007. This shows that there is a
weak growth prospect of the company and the company is much riskier
then other companies in the industry and the investors are not willing to
take risk.
2007
Market / Book value ratio = Market value per share
Book value per share
Analysis:
This ratio of stock’s market price to its book value gives another
indication of how investors regard the company. This ratio shows that
how much investor is willing to pay more for the stocks than their
accounting book value. As the M/B ratio is decline in 2007 to 3.577 times
this shows that investors willingness to buy the Lucky cement share is
decreasing and this also a bad sign for the Lucky cement company.
2007
Current ratio= Current Asset
Current Liabilities
= 1, 953, 527000
1,442,287000
Current ratio = 1.35 times
2006
Current ratio= Current Asset
Current Liabilities
= 1, 579, 381000
1,267,198000
Current ratio= 1.24 times
ANALYSIS:
In both years the position of the company to pay off its short term debt
is good. It is necessary for the company that its current ratio remains
above 1 time to meet its short term obligations and in the case of Fauji
cement the current of year 2007 is incresing because the current assets
increased more than the current liabilities.
2007
Quick ratio= Current Asset- Inventory
Current Liabilities
Quick ratio= 1.23 times
ANALYSIS
Here the Quick Ratio of year 2007 is increasing because company is not
holding huge amount of inventory as compared previous year.
2006
Inventory turnover = Sales
Avg inventory
= 4,286,138,000
490,887,000
Inventory turnover= 8.731 times
2007
Inventory turnover = Sales
Avg inventory
= 3, 463, 283000/
479828000
Inventory turnover= 7.21times
ANALYSIS:
Inventory Turnover Ratio indicates the effectiveness of the inventory
management practices of the firm. The inventory turnover of year 2007
is less than the inventory turns over of year 2006; inventory turnover
ratio of year 2006 was 8.731 times which indicates that 8.731 times in a
year the inventory of the firm is converted into receivables or cash.
However, in 2007, the inventory turnover ratio increased to 7.21 times.
This was due to the fact that the company, in 2007, the sales of the
company decreased.
= 95814000
Average collection period = 95814000 * 365
4,286,138000
Average collection period = 8.15 days
2007
Average collection period= Account Receivable * 365
Sales
Account Receivables = Trade debts+ other receivables
= 19, 558000+858, 758000
= 878316000
Average collection period = 878316000 * 365
3,463,283000
Average collection period = 92.56 days
ANALYSIS:
Credit policy is defined as the maximum time period allowed to the
customer to pay back.The average collection period in the year 2006 was
8.15 days which means that the firm is able to collect its receivables
within approximately 9 days. However, in 2007, the average collection
period increased to 93.56 days, thus now the company is collecting its
receivable within approximately 94 days. There could be many reasons
for this increase in average collection period such as, problem in
management, lack of incentive given to its customers or undependable
customer.
2007
Fixed Asset turnover= Sales
Fixed Asset
ANALYSIS:
The fixed turnover ratio measures how effective the firm uses plant and
equipment. The role of fixed asset is to support the sales. The fixed Asset
turnover ratio of year 2007 is 0.81 times and in year 2006 was 0.97 this
shows that as there is a decrease in sales or the fixed assets are increased
but can’t boost up sales.
2007
ANALYSIS:
The final asset management ratio the total asset turn over ratio
measures the turnover of all the firm assets and help us to identify when
problem occur that is a problem in fixed assets or in current assets..
2006
Debt to equity = Total Debt
Shareholder equity
2007
Debt to equity = Total Debt
Shareholder equity
ANALYSIS:
The debt to equity ratio in 2006 was 0.60 times which shows that debt is
0.60 times than equity. However in 2007 the debt to equity ratio
decreased to 0.38 which shows that the company curtails its financing
through debts although there is a decline in the risk the company facing
and the firm is to ideal situation which is 60% equity & 40% debt.
2007
Time interest earned= EBIT
Interest
= 995,285000
207,105000
Time interest earned = 4.80 times
ANALYSIS:
Indicates a firm’s ability to cover the interest charges. The interest
coverage ratio was 7.72 in 2006 which have decreased to 4.80 in 2007
therefore the company are not able to cover the interest expense at a
higher margin of safety.
2006
Profit margin = Net income
Sales
Profit margin = 28.08 %
2007
Profit margin = Net income
Sales
Profit margin = 18.66 %
ANALYSIS:
Profit margin of year 2007 declined because of the high cost which
occurs because of inefficient operations.
2007
Basic Earning Power= EBIT
Total Asset
= 995,285000
6,400,688000
Basic Earning Power = 15.54 %
ANALYSIS:
This ratio shows the raw earning power of the firm asset before the
influence of taxes and leverage and it is useful for comparing firm with
difference tax situations and different degrees of financial leverage. The
BEP of year 2006 was 32.94 % which decreased in 2007 to 15.54 %.
2006
Return on Asset= Net income
Total Asset
= 1,203,735000
6,198,107000
Return on Asset = 19.42 %
2007
Return on Asset= Net income
Total Asset
= 646,323000
6,400,688000
Return on Asset = 10.09 %
2006
Return on equity = Net income
Common equity
Return on equity = 28.70 %
2007
Return on equity= Net income
Common equity
ANALYSIS:
This ratio is the most important ratio for investor point of view. This
ratio shows that how much investors get return on their money that they
have invested in company stocks. If we compare the ROE of 2006 to
2007 there is a decline on ROE by 13.29% is not a good sign for the
investors to invest in company shares and this is also a threat to Fauji
cement because it is the goal of every company to maximize its
shareholders wealth.
EPS = 3.25
2007
EPS = total shareholder equity attributable to C/s
No of outstanding common stock
EPS = 1.74
Analysis
Earnings per share ratio (EPS Ratio) are a small variation of return on
equity capital ratio and are calculated by dividing the net profit after
taxes and preference dividend by the total number of equity shares. As
its shows that the earning power of the company has decreased.
DPS = 1.50
2007
DPS = dividends paid ÷ number of shares in issue
DPS = nil
Analysis
Dividend per share (DPS) is a simple and intuitive number. It is the
amount of the dividend that shareholders have (or will) receive for each
share they own. The company paid dividend in 2006 but in 2007 it
didn’t paid any dividend.
2007
Price per share / EPS = Price per share
EPS
Analysis:
(P/E) ratio shows how much investor is willing to pay per Rupee of
reported profits. There is an increase in P/E ratio. This shows that there
is a little growth prospect of the company and the company is not much
riskier then other companies in the industry and the investors are
willing to take risk.